SECTION 1. INTRODUCTION

As April 15 approaches, the Internal Revenue Service reminds taxpayers to steer clear of abusive tax-avoidance schemes that purportedly allow them to reduce or eliminate taxes based on false or frivolous arguments. If an idea to save on taxes seems too good to be true, it probably is.

Many abusive tax-avoidance schemes are based on frivolous arguments that the Service and the courts have repeatedly rejected. These schemes are often sold by promoters for a substantial fee, and may be sold over the Internet, through advertisements in newspapers and magazines and at conferences and seminars.

Section 2 of this notice sets out some of the most common frivolous arguments used by these abusive tax-avoidance schemes. The Service is committed to identifying taxpayers who attempt to avoid their federal tax obligations by taking frivolous positions. The Service will take vigorous enforcement action against these taxpayers and against promoters and return preparers who assist taxpayers in taking these frivolous positions. Frivolous returns and other similar documents submitted to the Service are processed through the Service’s Frivolous Return Program. As part of this program, the Service confirms whether taxpayers who take frivolous positions have filed all of their required tax returns, computes the correct amount of tax and interest due, and determines whether civil or criminal penalties should apply.

Section 3 of this notice identifies potential civil and criminal penalties for participation in, or promotion of, abusive tax-avoidance schemes. Taxpayers who engage in abusive tax-avoidance schemes will be liable for unpaid taxes and interest. In addition, the Service will impose civil and criminal penalties against taxpayers where appropriate. The Service also will impose appropriate penalties and consider taking other appropriate action against

persons who promote abusive tax-avoidance schemes and who prepare frivolous returns based on those schemes.